Gold (XAU/USD-spot) made a high of around 1561.41 in the mid-U.S. session Tuesday, jumped almost over +4.00% (from Friday’s closing of 1498.24) on Fed’s unprecedented open-ended QE-4. Gold made a low of around 1451.43 in the 2nd week of March on broad strength in USD amid US dollar shortage (as a funding currency) despite the Fed’s ongoing bazooka of monetary stimulus to prevent corona recession. As per reports, there is a global USD funding shortage of around $12T amid intensifying corona disruptions and subsequent market plunge across the globe in almost all the asset classes (except UST).

In the last two weeks, the U.S. dollar index jumped +7.04% as USDJPY jumped +5.16%, EURUSD plunged -5.29% (as EU turned into latest coronavirus epicenter after China), GBPUSD tumbled -11.09% (BOE rate cuts, higher QE and U.K. corona panic), while USDCAD gained +6.89% (on less corona disruption/lockdown). And Gold slumped -10.70%, while Dow capitulated -27.66%. Apart from strength in the greenback (USD), Gold was also affected by margin call in other asset classes, long unwinding (profit booking) and lower physical demand, especially from China and India (due to corona disruption) and suspected central bank intervention (Fed/BOJ.PBOC) amid unprecedented monetary stimulus. Also, in such turbulent times of the corona pandemic, cash is always the king.

On early Asian Monday, Dow Future plunged over -1700 points and Gold also made a low of 1482.64 as the U.S. Senate failed to advance the much-awaited corona stimulus package of around $2T (10% of U.S. GDP) coupled with increasing corona cases and deaths across the U.S. and Europe, especially in NY city and Italy. Another vote on the corona stimulus plan is expected Monday after Senate Democrats blocked the measure late Sunday, saying corporations benefited too much from the plan and individuals and healthcare workers wouldn't be protected enough from the economic fallout of the pandemic. The Senate Majority Leader McConnell promised the Senate would vote again soon after the market opens Monday:15 minutes after the markets open, and see if there's a change of heart.

Trump said on Sunday: We'll see what happens---I think we'll get there. To me, it's not very complicated. We have to help the worker; we have to save the companies.

But Dow Fut also briefly jumped almost +800 points along with Gold in the early U.S. session Monday after Fed launched its ultimate bazooka-official QE-4 (open-ended) including buying corporate bonds. The Fed unveiled an unprecedented expansion to its QE-4 already announced on 15th March, announcing open-ended QE which also gave it the mandate to buy corporates bonds (in the primary and secondary market) to bailout the frozen corporate bond market.

The Fed’s new credit facilities carry limits on paying dividends and making stock buybacks for firms that defer interest payments. Additionally, in addition to Treasuries, The Fed will buy Agency Commercial MBS all in unlimited size.

Federal Reserve announces extensive new measures to support the economy: March 23, 2020

The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation's first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.

The Federal Reserve's role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses. These actions include:

Support for critical market functioning. The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy. The FOMC had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.

Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.

Establishment of two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.

Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.

Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.

Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.

In addition to the steps above, the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium-sized businesses, complementing efforts by the SBA.

The Federal Reserve issues FOMC statement: March 23, 2020

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time and thereby promote its maximum employment and price stability goals.

The Federal Open Market Committee is taking further actions to support the flow of credit to households and businesses by addressing strains in the markets for Treasury securities and agency mortgage-backed securities. The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions. The Committee will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and will assess the appropriate pace of its securities purchases at future meetings.

In a related set of actions, the Federal Reserve announced additional measures to support the flow of credit to households and businesses. More information can be found on the Federal Reserve Board's website.

In connection with these plans, the Committee voted unanimously to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

"Effective March 23, 2020, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent. The Committee directs the Desk to increase the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities (MBS) in the amounts needed to support the smooth functioning of markets for Treasury securities and agency MBS. The Committee also directs the Desk to include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.

The Committee also directs the Desk to continue conducting term and overnight repurchase agreement operations to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets. In addition, the Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.00 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that is available for such operations and by a per-counterparty limit of $30 billion per day.

The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and to reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities received during each calendar month in agency mortgage-backed securities. Small deviations from these amounts for operational reasons are acceptable.

The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions."

Conclusions:

As per reports, the U.S. commercial mortgage market may be in severe distress and on the brink of collapse (defaulting), if the government does not bailout. Such a collapse of the commercial real estate mortgage market may create another domino effect (systemic crisis) on the corona strained economy and financial market.

The report said that loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and homeowners, landlords, developers, hotel operators and their respective tenants and employees. And in that scenario, the overall economic impact may be more than the 1929 Great Depression. Thus effectively, this is a bailout of the U.S. commercial mortgage market by the Fed/Trump admin to avert another fresh crisis.

Thus the Fed is firing all its bazookas to ensure liquidity in the market and there will be no QE-Lite tapering. But despite Fed’s open-ended QE-4 (QEternity), eventually, Dow Fut slips by over -1700 points from the session high as such dead cat bounce is a great opportunity to sell at the high until the ‘invisible enemy’, coronavirus gets effectively contained on both sides of Atlantic. The selling in Dow gathered more momentum after the U.S. Senate failed to clear the $2T corona stimulus bill despite its 2nd attempt. The much-awaited corona stimulus is now a playing ball by U.S. politicians ahead of the Nov’20 election (if not postponed due to corona disruption).

Bottom line:

Despite lingering corona risk-aversion, overall Gold lost -2.00% in March (MTD) as USD surged on shortage as a funding currency and cash is king in such corona market turmoil.

Technically, whatever may be the narrative, Gold now has to sustain over 1580 for a further rally to 1595/1610*-1625/1650* and 1680/1695-1705*/1720 in the near term (under bullish case scenario).

On the flip side, sustaining below 1575-1565, Gold may fall to 1545/1525-1500*/1470 and 1445*/1420-1400/1380 in the near term (under bear case scenario)

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